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Foxconn: When the business case falls over

Check this from the FT:

“Foxconn, the world’s largest electronics contract manufacturer, expects its customers – which include Apple, Dell and Sony – to help shoulder the burden of a large wage increase for its factory workers.”

In case you’ve missed the backstory: More than ten workers at Foxconn have killed themselves this year. Clearly this is related to pay and conditions.

As a result of the huge scandal, which Foxconn’s CEO said he has lost a lot of sleep over:

“The group said that as well as a 30 per cent wage increase from July 1, workers who reach certain performance standards would also get another 66 per cent pay rise from October 1.

“The monthly wage for all first-line employees and their line leaders and supervisors in Shenzhen will be elevated to Rmb2,000 ($290) as early as October 1 2010,” if the workers successfully passed a three-month evaluation period, the company said.

The latest pay rise would more than double the basic pay of assembly line workers in Shenzhen and bring it to a level they currently only reach by working 12-hour shifts, six days a week.”

We’ve been pointing out for years that labour costs and expectations are rising all the time in China.

How long it will retain a real low cost advantage for depends on the region and the product. But I think it is fair to assume that not everything made in China can simply be made in cheaper Vietnam, North Korea, Cambodia, Pakistan, Indonesia and Bangladesh.

So costs are going to go up in China. And so they should. It seems logical to me that this is where the business case for corporate responsibility hits the wall of economics at speed, and falls over in a heap.

Sure you can raise productivity in factories with better working conditions, drive efficiency that delivers lower carbon and more product, but some things have just been too cheap for too long. We’ve become used to the £20 DVD player.

With full-cost accounting and decent pay for workers like those of Foxconn, those costs may well have to go up.

Which has always lead me to conclude that if you rely on the business case alone for responsible business investment you simply end up with Foxconn situations. Who wants their Ipad production line worker contemplating suicide?

Better lighting, toilet breaks and eliminating forced overtime might get you substantially happier workers, but sometimes you just have to pay more too. And who can afford that? Well, Apple and its customers that buy Ipods, Ipads and Iphones, that’s who.

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